Question

need help with exercise 1 parts 1-3

Exercise Oro Company has two departments with the following production data. It has historically used a single-plant-wide overhead rate based on direct labor cost Welding Fabrication Manufacturing overhead cos $ 120,000 $ 180,000 Direct labor cost $ 25,000 $ 6,250 Direct labor hours 2,500 625 Machine hours 100 2,000 a) Single Plant-Wide Overhead Rate Compute departmental overhead rates. Assume welding applies overhead using direct labor hours and fabrication using machine hours. b) Departmental Overhead Rate - Welding per DL hr c) Departmental Overhead Rate-Fabrication per mach. He Exercise Loco Company sells 2 products (standard & deluxe) and it identifies the following overhead costs, activities, and drivers for 2011 Expected Expected Activity Cost Activity Driver Handling materials $12,000 1250 Parts Storing materials $3,000 2,500 Square feet Inspecting product $24,000 500 Batches Purchasing $30,000 1.250 Purchase orders Insuring the factory $6,000 12,500 Square feet Cleaning workspace $3,000 12,500 Square feet 1.250 Machine hours Total overhead cost $87,000 Estimated production data for the two products is as follows: Standard Deluxe Volume (in units) 15,000 5,000 Parts 750 500 Storage space used L 1,750 750 Batches made Purchase orders 875 375 Workspace used 10,000 2,500 Machine hours 500 750 Caloulate the following ABC overhead rates (round to the a) ABC Rate - Handling per part b) ABC Rate - Storing per sq.ft c) ABC Rate - Inspecting per batch d) ABC Rate - Purchasing per PO e) ABC Rate - Insurance per sq.ft A ABC Rate - Cleaning per sq.ft g) ABC Rate - Utilities per mach he Standard Deluxe h) Handling costs assigned i Storage costs assigned Inspecting costs assigned k) Purchasing costs assigned D Insurance costs assigned m) Cleaning costs assigned n) Utility costs assigned o) Total overhead Standard Deluxe p] Overhead cost per unit Exercise Use the information from exercise 2. but assume Loco uses a single plant-wide overhead rate based on machine hours. a) Single plant-wide rate per mach, hr. Standard Deluxe b) Total overhead assigned c) Overhead cost per unit

Answer 1

Ans.

1.

a)

Single Plant-Wide Overhead Rate = Total Manufacturing Overhead Cost / Direct Labor Cost

Total Manufacturing Overhead Cost = $ 120,000 + $ 180,000 = $ 300,000

Direct Labor Cost = $ 25,000 + $ 6,250 = $ 31,250

Single Plant-Wide Overhead Rate = $ 300,000 / $ 31,250 = $ 9.6

b)

Departmental Overhead Rate - Welding = Manufacturing Overhead Cost / Direct Labor hours

Departmental Overhead Rate - Welding = $ 120,000 / 2500 DLhr = $ 48 Per Direct Labor Hour

c)

Departmental Overhead Rate - Fabrication = Manufacturing Overhead Cost / Machine hours

Departmental Overhead Rate - Fabrication = $ 180,000 / 2,000 Machine hours = $ 90 per machine hour

2.

ABC Overhead Rates = Expected Cost / Expected Activity Driver

a	ABC Rate - Handling	$           9.60	Per part
b	ABC Rate - Storing	$           1.20	per sq. ft.
c	ABC Rate - Inspecting	$         48.00	per batch
d	ABC Rate - Purchasing	$         24.00	per PO
e	ABC Rate - Insurance	$           0.48	per sq. ft.
f	ABC Rate - Cleaning	$           0.24	per sq. ft.
g	ABC Rate - Utilities	$           7.20	per mach. Hour

Cost Assigned = Estimated production data for products * ABC Overhead rate related to it

		Standard	Deluxe
h	Handling costs assigned	$    7,200.00	$            4,800.00
i	Storage costs assigned	$    2,100.00	$               900.00
j	Inspecting costs assigned	$ 12,000.00	$         12,000.00
k	Purchasing costs assigned	$ 21,000.00	$            9,000.00
l	Insurance costs assigned	$    4,800.00	$            1,200.00
m	Cleaning costs assigned	$    2,400.00	$               600.00
n	Utility costs assigned	$    3,600.00	$            5,400.00
o	Total overhead	$ 53,100.00	$         33,900.00

		Standard	Deluxe
p	Overhead Cost per unit	$            3.54	$                    6.78

3.

a)

Single plant-wide rate = Total Overhead Cost / Machine Hours

Single plant-wide rate = $ 87,000 / 1,250 Machine hours = $ 69.6 per machine hour

		Standard	Deluxe
b	Total Overhead assigned	$ 34,800.00	$         52,200.00
c	Overhead Cost per unit	$            2.32	$                  10.44